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CIRCULAR FLOW OF ECONOMIC ACTIVITY

CIRCULAR FLOW OF ECONOMIC ACTIVITY. CIRCULAR FLOW OF ECONOMIC ACTIVITY. To the economist, a market is a location or other mechanism that allows buyers and sellers to deal in a certain economic product. Markets may be local, regional, national, or global. All markets have a circular flow.

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CIRCULAR FLOW OF ECONOMIC ACTIVITY

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  1. CIRCULAR FLOW OF ECONOMIC ACTIVITY

  2. CIRCULAR FLOW OF ECONOMIC ACTIVITY To the economist, a marketis a location or other mechanism that allows buyers and sellers to deal in a certain economic product. Markets may be local, regional, national, or global. All markets have a circular flow.

  3. Individuals earn their incomes in FACTOR MARKETS (the markets where productive resources are bought and sold). Entrepreneurs hire labor for salaries, land is provided in return for rent, and money is loaned for interest or invested for a profit.

  4. When individuals receive their incomes, they spend it in PRODUCT MARKETS (markets where producers offer goods and services for sale).

  5. Economists use the circular flow diagram to show the high degree of economic interdependence in our economy.

  6. In the diagram, money circulates on the outside to illustrate payments for goods, services, and factors of production, which flow in the opposite direction on the inside.

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